Ad watch – NatWest’s 0%uch ad is dangerously misleading

The semi-publicly owned bank has funded a huge ad campaign to declare to people the danger of 0% cards. From full page newspaper ads to viral videos, it’s trying to persuade people its stance is in their favour. So I wanted to bash out a quick blog to put that to the test.

Its newspaper ad screams out at you…

"No to 0% credit card deals because they have rates that jump up and sting you once the rates end".

Its big deal is its NatWest Clear Rate card, a simple low rate card of 6.9% annual interest on all balance transfers and purchases. All sounds nice but as its ads are very concerned about ‘stings in the tail’, I thought I should warn you of, yes you guessed it, a couple of stings in the tail.

There’s a £24 annual fee. This is thankfully a rarity for mainstream non-rewards credit cards. Incorporate this into its interest rate and it’s 11.1% representative APR.

You may be accepted but pay a higher rate. As NatWest is campaigning for transparency, let’s be very clear. The fact this is a ‘representative’ APR means it, like almost every card, only needs to give 51% of accepted customers the advertised rate. The rest can be charged more.

There are better stable rate cards than NatWest’s

NatWest’s offering isn’t an awful deal, there are far worse on the market. Yet there are certainly far better cards with similar non-0% deals.

As a straight comparison my top pick, similar, stable rate card is the MBNA Low Rate which is 6.6% representative APR – so lower than NatWest – and crucially no annual fee. Overall that’s a big saving.

How does NatWest compare to those 0%uch cards?

Of course, what NatWest’s campaign is all about is bad mouthing 0% deals that sting you by bolting up the rate at the end of the deal. So let’s see how it actually compares. Three housekeeping notes before I do that…

I’m comparing it to the best cards on the market. Of course there are poor 0% cards too, but as it’s attacking the entire concept, this seems fair to me.

I’m assuming you don’t do the right thing and tart. The best way to use 0% cards is disloyally shift from 0% card to 0% card as soon as one deals ends. That irrefutably cuts card debt far better than any other method; and smashes NatWest. Yet to be generous, I’m going to assume people use 0% cards and don’t shift once the 0% ends.

This all depends on acceptance. Of course the calculations are moot if you get rejected. To see which cards you’re most likely to get use the free eligibility checker tool.

These are spreadsheet calculations. Interest calculations vary between card providers, so treat these as good back-of-the-envelope calculations rather than exact.

FIGHT 1: NatWest v 0% balance transfers

Let’s start with what 0%’s are famous for – debt shifting balance transfer cards. Here the big beast on the market is Barclaycard’s current offering. It allows you to shift debt at a huge 33 months 0% with a one-off fee of 2.99% followed by 18.9% representative APR afterwards. For more options and info see Top Balance Transfers.

Debt remaining on £3,000 shifted, repaying fixed £100 a month

After 1 year

After 2 years

After 3 years

After 4 years

After 5 years

After 6 years

After 7 years

After 8 years

After 9 years

After 10 years

Barclaycard

£1,890

£690

–

–

–

–

–

–

–

–

NatWest

£1,994

£919

–

–

–

–

–

–

–

–

Debt remaining on £3,000 shifted, repaying MIN REPAYMENTS

Barclaycard

£2,347

£1,786

£1,412

£1,252

£1,110

£983

£872

£773

£685

£607

NatWest

£2,658

£2,354

£2,085

£1,847

£1,636

£1,448

£1,282

£1,135

£1,005

£889

So here Barclaycard smashes NatWest.

Repaying £100 a month, Barclaycard is £229 cheaper.

With Barclaycard, you’d clear the £3,000 in 31 months and the only cost would be the £90 transfer fee. With NatWest, it’d take 34 months and you’d pay £298 in interest and £48 in annual fees.

Repaying just the minimum repayments, Barclaycard’s 0% still wins.

Barclaycard is far cheaper in the first three years (when it’s mostly at 0%) and by that point, you’’ have cleared £600+ more debt; meaning you’’e less debt to accrue interest. Of course the best practice at that point is to shift the debt again to another 0% deal (see Cheap balance transfers).

But even if you don’t, the fact that during the 0% period so much of your cash has gone to clearing the debt not serving the interest, means that while NatWest has a lower interest rate – even if you left it hanging for 10 years, you’d still owe Barclaycard less than NatWest.

However it’s worth noting Barclaycard does have a slightly higher minimum payment at the start, which impacts this too. If you look at the amount you’ve paid as well, then after about nine years NatWest does become a slightly better deal than Barclaycard in this.

FIGHT 2: NatWest v 0% borrowing cards (ie, new spending on the card)

If you were planning to use the card to spend on, the top new cardholder 0% deal is Tesco 19 months 0% with no fees followed by 18.9% representative APR after. More options and full help in Top 0% cards.

I went for two variants here, the first, a planned one off big purchase (£1,500) the second, regular monthly spending on the card (a very dangerous thing to do that I’d strongly caution anyone against – using credit cards to fill the gap in your income is never good).

Debt remaining on £1,500 spending repaying fixed £75 a month

After 1 year

After 2 years

After 3 years

After 4 years

After 5 years

After 6 years

After 7 years

After 8 years

After 9 years

After 10 years

Tesco card

£600

0

0

0

0

0

0

0

0

0

NatWest

£700

0

0

0

0

0

0

0

0

0

£100 spending a month, making only minimum repayments

Tesco card debt left

£900

£1,840

£2,756

£3,567

£4,287

£4,924

£5,490

£5,991

£6,435

£6,828

Tesco amount paid

£300

£689

£1,381

£2,335

£3,515

£4,896

£6,455

£8,172

£10,028

£12,009

NatWest debt left

£1,101

£2,099

£2,984

£3,768

£4,463

£5,080

£5,626

£6,110

£6,539

£6,920

NatWest amount paid

£134

£477

£991

£1,661

£2,470

£3,402

£4,443

£5,581

£6,804

£8,103

The results here are split.

Tesco smashes NatWest for the one-off £1,500 spend.

The Tesco card is paid off after 20 months and no interest is paid (as the 20th month is the first one you’re charged interest, but you’re clearing the balance in full so you don’t pay it). The NatWest card is paid off after 22 months. During that time you’ve paid £48 in annual fees and £98 interest, so a total of £146.

On £100 a month, NatWest wins in time.

This is a relatively false scenario as you’d need a huge credit limit; but even so let’s look at it. Tesco is far cheaper in the first 19 months, but even after that NatWest’s minimum repayments are lower than Tesco so even after 10 years you’d have less debt on it.

That’s why I’ve also added in an ‘amount paid’ row too. When that’s factored in (ie, add debt left to amount paid), NatWest starts to be cheaper after three years.

Of course you’d be far better off to take Tesco for 19 months then shift the debt to a 0% balance transfer card and get another 0% purchase deal – and better still, not to do it. Yet this does show if you’re going to continually borrow and not pay it off and not manage the cash, NatWest can beat a 0% card.

I did also compare NatWest to the Top all-rounder cards, which give 0% on both purchases and balance transfers. The results there were roughly similar to spending cards – in other words if all the borrowing is upfront with decent repayments NatWest loses, but if you have minimum repayments and keep spending on the card, NatWest over time wins.

The summary

I think NatWest’s adverts are disingenuous and dangerous. The concept would’ve worked five years ago when 0% deals were far shorter than they are now. But certainly with 33 months 0% on balance transfers these are no longer just short-term propositions. To use an advert to mis-portray them as a dangerous product is simply wrong.

That doesn’t mean they always win, it just means there is a choice and different things suit different people. For those who just want to shift the debt, spend and then forget about it without doing anything, stable rate cards have a strong place – and that’s something I’ve always championed. Yet if you are going to do it, NatWest’s card with its annual fee, certainly isn’t the one I’d use.

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